What is online trading?

It is basically the act of buying and selling financial products through an online trading platform. These platforms are normally provided by internet based brokers and are available to every single person who wishes to trade in the market. Most brokers, provide a variety of financial products including shares, commodities and currency. All it needs is a good internet connection, subscription to account, mobile banking application and sufficient funds in the bank account. Many free and paid mobile and web applications and portals for trading are available on internet. Stock trading can be financially rewarding if done in the right way. Investing in the stock market involves riding the various ups and downs of the market. Since the introduction of online trading in India, investing has become convenient. Stock market trading is a great alternative when it comes to long-term wealth creation. Online trading involves the trading of securities through an online platform. Online trading portals facilitate the trading of various financial instruments such as equities, mutual funds, commodities and currency.

Difference between Investing and Trading

Investing and trading are two different mechanisms employed to make a profit in the financial markets. Though both investing and trading may appear as parts of the same process for someone who is relatively inexperienced in the financial market, in reality the two are far from being similar.

Investing

Investing is traditionally related to buying stocks or other financial instruments that are expected to fetch returns over a long period of time. They are often held onto like family gold for several years. For this reason, it is important that investors select stocks or bonds of companies which are expected to grow in the long term. The aim of an investor is to create a balanced portfolio of different stocks and bonds that give returns through increase in value as well as dividends or interest income. This enables him or her to attain financial security. As a result, investors do not sell their holdings regularly. It is only in case of an emergency or when the stock has met its long-term targets.

Trading

Trading is characteristically associated with buying and selling stocks, commodities, currencies, bonds or other financial instruments over shorter periods. This is primarily to make profits from the short-term movements in prices of these securities. So, traders essentially take advantage of volatility. Assessing good trading opportunities typically makes use of trading systems or chart-based techniques to detect short-term patterns in prices. This is called technical analysis. It involves more frequent buying and selling of stocks or other financial instruments.

Online VS Offline trading

Flexibility : Offline Trading has two options, a call or visit to the broker office. In many instances, clients have missed trade because of lack of communication or unavailability of broker. Whereas in online trading, the order punched is at the correct time which becomes easier.

Fees : Offline Trading includes various middlemen and the fees for trading increases. Whereas in online trading the costs are negligible when compared as the clients themselves do the trade.

Prevention of Fraud : There are possibilities in Offline Trading as the clients are managed by the traders. Whereas in online trading, the chances of error or fraud is minimum or negligible.

Direct Link to Bank : In Offline Trading, clients have to write down a cheque or Demand Draft in favour of the broker which causes delay as it takes time to clear the payment. Whereas in online trading, the bank account can be directly linked to Demat account, leading to instant bank transfers.

Real Time Information : In Offline Trading, minute to minute tracking of stock prices is difficult. The information provided is through a contract note or confirmation call, which is done after market hours. One can get the exact information on time with less payment for transactions.

Portfolio Management : Broker houses offers to manage the portfolio and guarantee the clients decent returns. It has to be done by self in online trading as no such assistance is provided.

Single Platform : In online trading, through mobiles and computers, many options are under one head, like buying and selling of stocks, transfer and withdrawal of money, etc. But in Offline Trading, no such facility is available.

Benefits of online trading

It eliminates the middleman : One can buy and sell without even speaking to one’s broker. This makes online trading alluring for someone who does not have the finances to work with full-service brokers.

It’s cheaper and faster : When a broker executes one’s trades, it costs one more money. On the other hand, when one trade online, a brokerage charge is levied but it is always less than what a traditional broker who has to place a trade physically, would charge one. Online trading is almost instantaneous.

It offers greater investor control : One of the most important advantages of online trading is that it gives one greater control over one’s investments. One can trade whenever one want with online trading during the trading hours and one can also take one’s own decision without any interference from the broker. One can monitor one’s investments in real time: One’s online trading platform has a lot of advanced tools and interfaces to monitor one’s investing performance and to do one’s own research. One can see real time gains or losses whenever one login from one’s phone or computer.

How to start an online trading account

Steps to open a trading account online

The Aadhaar-based eKYC method : these days it’s far simpler and faster to open one’s trading account - using the Aadhaar based paperless registration. This method uses one’s Aadhaar card details to complete one’s registration process online, as long as one have a valid mobile number linked to one’s Aadhaar card. Keep all of one’s scanned copies of one’s personal documents (PAN Card, Aadhaar card, and a cancelled cheque) on one’s device. One will be required to upload them during the registration process, after one has progressed past the Aadhaar linking step.

Traditional Paper Registration : Start by downloading the trading account opening forms. The documents will include both the account opening forms and the KYC forms. Print out these forms, and fill in the required fields. One will also need 2 passport-size, self-attested photographs to affix in these forms. Once one are done completing the forms, sign in the the required places and attach one’s self-attested personal documents (PAN card, ID proof and address proof). Now one have to hand it over to one’s brokerage firm personally or by post.

How to Start Trading Online :

The steps one should follow before one invests in the stock market are:

Get a PAN card : A PAN card is must for one for any financial transaction in India. PAN is required for opening a bank account, investing in the stock market and mutual funds, filing Income Tax returns etc.

Get a broker : One is not allowed to go directly to a stock exchange and trade in the stock market. A facilitator or intermediary also known as a broker is required for traders and investors to participate in the stock markets. That’s why, get one’s self a stock broker.

Open a demat and a trading account: One are allowed to trade in the stock market only through demat and trading accounts. One must open a demat and a trading account before one can invest in the Indian stock mar via their platforms.

How to do online trading?

For a long time in the pre internet era, and in fact, much of the early internet era, when a person had to buy or sell financial instruments like bonds, shares, etc., they needed to call their brokerage firms and ask them to make a trade for them. With that came a long drawn process of informing the price, checking whether the deal is right or not, and finally confirming it.

Thank God online trading happened. Online trading is much more simplified. A person can buy and sell securities simply by registering on an online trading platform. Internet based brokers are everywhere now, and anyone can easily buy and sell without any hassle.

Learning to Trade Stocks

One needs to study. Until he/she doesn’t know what is stock market trading, one cannot become a part of it

To simplify one’s work, one can consider getting a broker. There are a number of authentic brokers available online. Never invest in what one doesn’t understand. Don’t try to invest money that one can’t afford to lose. One can even diversify their investments by putting their money in different stocks.

Buying the right stocks at the right time can happen only when one is disciplined enough. One needs to follow it religiously.

Choosing a Brokerage Partner

Availability - It is vital for a stock broker to receive information regarding all activities like the trades, margin, profit and loss, etc.

Reliability - Reliability is equally important. One doesn’t want their broker’s servers going down during peak hours and causing one unnecessary loss.

Alternatives - One’s broker may turn out to be reliable, but it can difficult to ascertain the same for one’s own internet connection. Therefore, look out for a firm providing alternatives to online trading, for example call and trade facilities. Even discount brokers who specialize in online trading have contingency plans that offer call-and-trade services in case of emergencies etc.

Research - As mentioned earlier, one should always research about the stocks one want to buy. Similar research should be done while choosing one’s broker too. One must be aware of the broker’s background before choosing.

Products Offered - Beyond offering one a stock trading platform, there are other services that a discount broker can offer at the same extremely competitive rates, such as a chance to participate in the derivatives market (futures & options) etc, charting tools to help one’s analysis, and more. Before picking a broker, do check the services offered.

Making Trading Decisions

The first thing that one should do is sit down and analyse how much money are one ready to invest and how much can one afford to lose. If one invests without this perspective, one might end up losing everything.

Making money is not a cakewalk. It is necessary to realise that there are risks involved and all investments are risky to a certain degree.

It is not always one’s luck that makes one lose money. Many-a-times, it is one’s lack of knowledge. Hence, it is appropriate to first thoroughly study and then start investing. If one are thinking of becoming a full time investor, do consider maintaining an emergency fund.

Strike a balance between one’s financial goals & market performance. - while instinctive decisions taken on a whim may or may not work, a well-researched call from reliable inputs is very likely to succeed in the long term.

What is technical analysis and how can one do it?

Technical analysis is a trading discipline employed to evaluate investments and identify trading opportunities by analyzing statistical trends gathered from trading activity, such as price movement and volume. Unlike fundamental analysts, who attempt to evaluate a security's intrinsic value, technical analysts focus on patterns of price movements, trading signals and various other analytical charting tools to evaluate a security's strength or weakness. In fact, some view technical analysis as simply the study of supply and demand forces as reflected in the market price movements of a security.

Some basic assumptions of technical analysis

The market price accounts for everything : Fundamental analysts criticize technical analysis because of the fact that it only considers price movements and totally ignores fundamental factors such as political impact. However, technical analysts counter this criticism by stating that a stock’s price already reflects everything that has or could affect a company. So this removes the need for one to be concerned about fundamental factors. The only thing one should be concerned about is the analysis of price movement.

Prices move in trends : By the assumption of technical analysis, prices move in short-, medium-, and long-term trends. The stock one pick for analysis will follow the same past trend, rather than move randomly.

History tends to repeat itself : The third assumption is that the market history tends to repeat itself. It is believed that the repetitive nature of the price movements is due to market psychology. One will have to use chart patterns and historical data to analyze these emotions and understand market trends. While technical analysis has been used for more than a 100 years, it is still relevant because stocks follow patterns in price movements that often repeat themselves.

What is technical analysis and how can one do it?

Technical analysis is a trading discipline employed to evaluate investments and identify trading opportunities by analyzing statistical trends gathered from trading activity, such as price movement and volume. Unlike fundamental analysts, who attempt to evaluate a security's intrinsic value, technical analysts focus on patterns of price movements, trading signals and various other analytical charting tools to evaluate a security's strength or weakness. In fact, some view technical analysis as simply the study of supply and demand forces as reflected in the market price movements of a security.

Some basic assumptions of technical analysis

The market price accounts for everything : Fundamental analysts criticize technical analysis because of the fact that it only considers price movements and totally ignores fundamental factors such as political impact. However, technical analysts counter this criticism by stating that a stock’s price already reflects everything that has or could affect a company. So this removes the need for one to be concerned about fundamental factors. The only thing one should be concerned about is the analysis of price movement.

Prices move in trends : By the assumption of technical analysis, prices move in short-, medium-, and long-term trends. The stock one pick for analysis will follow the same past trend, rather than move randomly.

History tends to repeat itself : The third assumption is that the market history tends to repeat itself. It is believed that the repetitive nature of the price movements is due to market psychology. One will have to use chart patterns and historical data to analyze these emotions and understand market trends. While technical analysis has been used for more than a 100 years, it is still relevant because stocks follow patterns in price movements that often repeat themselves.

Please ensure that you have carefully read the Risk Disclosure Document (RDD) as prescribed by SEBI.

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